MUMBAI: The Reserve Bank of India (RBI), which has been frowning upon the mushrooming of alternative investment funds (AIFs) for quite sometime, has tightened the overall regulations by capping the investments by banks, non-banks and all-India financial institutions at 10% of the corpus of any such scheme.
The new norms are part of the central bank’s updated directions on investment in AIF schemes, issued Tuesday. The new directions will be in force from January 1, 2026 and will apply to all banks, cooperative banks, non-banks, all-India financial institutions and housing finance companies.
Also, collective contribution by all regulated entities in any AIF scheme should not be more than 20% of the corpus of that scheme, said the directions.
More importantly, the RBI has also mandated 100% provisioning by the investing entity in case of breach of the new investment caps, either individually or collectively.
The alternative assets market in India, currently estimated at $400 billion AUM, is projected to grow 5x to $2 trillion over the next decade.
According to an IBEF (India Brand Equity Forum) report, the domestic AIF industry (which includes category II funds and private credit funds) had commitments worth Rs 13 trillion or $150 billion as of December 2024. The global AIF industry is a little over $20 trillion.
Of this, category II AIFs in the country, which are regulated by Sebi, including private equity, real estate, and distressed asset funds, comprised Rs 10 trillion ($115 billion) and the private credit segment accounted for 15% of total AIF commitments at Rs 1.95 trillion or $22.39 billion.
As of May 2025, there are 1,550 registered AIFs in the country, according to the above-cited report, which added that the industry has surged nearly 110% in commitments in the fiscal 2025 compared to fiscal 2022. The industry is projected to surpass Rs 100 trillion or $1.15 trillion by 2030.
The RBI had earlier issued AIF guidelines in December 2023 and later in March 2024 prescribing investment limits by entities under its watch. Both these circulars stand cancelled from January 2026 but investments made before today can follow the previous norms, the regulator said.
The new guidelines take into account the industry feedback as well as Sebi regulations relating to specific due diligence of investors and investments of AIFs, the circular said.
"No RE shall individually contribute more than 10% of the corpus of an AIF Scheme," the circular said, adding “collective contribution by all REs in any AIF scheme shall not be more than 20% of the corpus of that scheme.”
Tightening the norms, the circular said, "If a RE contributes more than 5% of the corpus of an AIF scheme, which also has downstream investment in a debtor company of the RE, then the RE shall be required to make 100% provision to the extent of its proportionate investment in the debtor company through the AIF scheme, subject to a maximum of the direct loan and/or investment exposure of the RE to the debtor company."
The circular also said that the RBI may, after consulting the government, exempt certain AIFs from the scope of the existing circulars and the revised directions.